AI in Insurance
State insurance regulators grapple with how and whether to regulate AI - Insurance News
State regulators are studying, surveying and scrutinizing artificial intelligence for any negative impacts on the insurance world. What they are not doing -- yet -- is issuing any model laws for states to adopt. Regulators came close last month with the release of the Model Bulletin on the Use of Algorithms, Predictive Models, and Artificial Intelligence Systems by Insurers. And the effort is seemingly not making anyone happy.
The bulletin is not a model law or a regulation. It is intended to "guide insurers to employ AI consistent with existing market conduct, corporate governance, and unfair and deceptive trade practice laws," the law firm Locke Lord explained.
Meanwhile, the National Association of Insurance Commissioners met last week in Seattle. AI featured prominently in several different working group discussions. Regulators released a new batch of AI survey data, with 70% of the reporting homeowners' insurers indicated that they “currently use, plan to use, or plan to explore using” AI. Insurers are intrigued with the many uses of AI in all aspects of operations. But regulators are struggling with how to regulate the sweeping technology. AI principles adopted early. In August 2020, the NAIC adopted guiding principles on artificial intelligence.
The NAIC guiding principles are based on the Organization for Economic Co-operation and Development’s AI principles that have been adopted by 42 countries, including the United States. After robust discussions, state insurance regulators added a principle encouraging industry participants to take proactive steps to avoid proxy discrimination against protected classes when using AI platforms.
There was hope that the NAIC would use the guiding principles as a starting point for strong AI regulation, several speakers said last week during an Innovation, Cybersecurity, and Technology Committee meeting. Peter Kochenburger is a visiting professor of law at Southern University Law Center.
He described the AI principles as "a far-reaching and frankly, exciting document" meant to lay out the framework for further NAIC work would proceed in various committees. That promise is "largely unfulfilled" by the new model bulletin, he added. "The document does, frankly, very little other than to flesh out and specify what is already in the principles and misses opportunities to start to set, not simply expectations, but guidance and documentation of what insurers need to do," Kochenburger said. He further criticized the document for soft language in important areas. Consumer advocates are concerned by the potential for rampant "proxy discrimination" with AI-fueled use of big data.
News
Hurricane Idalia forms as Florida’s Gulf Coast braces for direct hit
Hurricane Idalia formed early Tuesday and was expected to “rapidly intensify” ahead of a projected landfall along Florida’s Gulf Coast this week as a major Category 3 hurricane, according to the National Hurricane Center.
Idalia (pronounced ee-DAHL-ya) was 370 miles south-southwest of Tampa Bay as of 5 a.m. Tuesday, traveling north at 14 mph, with maximum sustained winds of 75 mph.
“Rapid intensification is likely through landfall, and Idalia is forecast to become an extremely dangerous major hurricane before landfall on Wednesday,” the National Hurricane Center said in its latest outlook.
Idalia’s hurricane-force winds extended outward up to 15 miles from its center and tropical-storm-force winds extend outward up to 160 miles as of early Tuesday.
The National Hurricane Center said Monday night that life-threatening storm surge and winds are “becoming increasingly likely” for parts of the state.
Farmers Insurance announces a company-wide reorganization with layoffs
As part of an effort to streamline its operations and better position the company for future growth and profitability, Farmers Insurance has announced that it will be releasing approximately 2,400 employees, or about 11% of its workforce, across all lines of business.
The company said the change in structure is intended “to create a more efficient organization” and comes after “a thorough evaluation of the company and reduction of operational expenses across Farmers.”
Farmers said its new strategy will “reinvent how insurance is delivered,” while “simplifying systems and introducing innovation that supports the success of its employees and agents.”
“Given the existing conditions of the insurance industry and the impact they are having on our business, we need to take decisive actions today to better position Farmers for future success,” said Raul Vargas, president & chief executive officer of Farmers Group, Inc., said in a release. “Decisions like these are never easy, and we are committed to doing our best to support those impacted by these changes in the days and weeks to come.”
Vargas cited the various macroeconomic challenges the industry faces and the importance of being prudent with how they manage risks and align costs to create “sustainable profitability.” Having a leaner operating structure will better enable the company to react more quickly to market conditions and the needs of their agents and policyholders.
The company said it will share more details on how it will continue supporting agents with better tools, data and systems, as well as a wide range of industry-leading products.
Why rideshare drivers need separate auto coverage
Uber and Lyft employ millions of Americans, with more than 60% saying being a rideshare driver is their full-time job, according to Gridwise. While the freedom of setting their own schedule helped attract people to the job, many likely did so without fully thinking through how it would impact their insurance situation.
Drivers with separate vehicles for a rideshare job and personal use, a practice employed by 42% of gig-work drivers, can simply enroll the respective vehicles in separate commercial and personal policies, according to The Zebra.
However, Allstate does note that many of the major rideshare companies do offer limited commercial coverage to drivers using their personal cars, but these policies typically only offer coverage when the driver is going to pick someone up or had a passenger in the vehicle.
Rideshare endorsements are available for many insurance companies for drivers with one car and for times when a company’s limit coverage wouldn’t apply. Additionally, a rideshare endorsement can help cover any gaps in coverage left by the company’s limited coverage.
While a rideshare endorsement is vital coverage for someone making a living in this sector, Gridwise reported that 54% of gig-work drivers don’t purchase rideshare insurance. Around 6% of drivers are uncertain if they are covered for rideshare work.
Property-Casualty Premiums Rose for 23rd Consecutive Quarter in Q2
Commercial property-casualty insurance prices increased 8.9 percent during the second quarter of this year, the 23rd consecutive quarter of premium increases, according to the Council of Insurance Agents & Brokers (CIAB) Commercial Property/Casualty Market Index Q2/2023.
The second-quarter premium increases were a slight increase from the 8.8 percent increase the CIAB's quarterly survey reported for the first quarter.
"Similar to last quarter, respondents reported that carriers often required additional detail on submissions during renewals, in particular when it came to lines like commercial property and commercial auto," the CIAB report says. "However, several respondents also mentioned that they believed carriers were also more willing to compete for accounts by pulling back on premium increases and lowering retentions."
Medium-sized accounts saw the largest second-quarter premium increases at 9.8 percent, though that was only slightly higher than the 9.7 percent increase experienced by large accounts, the CIAB said. Large accounts were a major focus of insurer competition, the CIAB survey found, with the average second-quarter premium increase down from an 11.4 percent increase during the first quarter. Small accounts saw a 7.2 percent increase.
Low flood insurance penetration in western US states leaves residents facing significant financial risk: Moody’s -
With more frequent intense floods predicted for the future, residents in western US states need to consider flood insurance, urges Moody’s, as it highlights the region’s low flood insurance penetration rates in a recent report.
According to the report, this low percentage of insurance penetration has left residents in California and the western US states facing “significant risk of financial devastation and long-term economic setbacks” following record rainfall due to Tropical Storm Hilary.
California and the dry desert states of Arizona and Nevada are used to breaking temperature records. In July, Phoenix set a record for the most consecutive days of high temperatures of 110 degrees Fahrenheit (about 43.3 degrees Celsius) or higher, with a total of 31 days.
Later, on August 20 and 21, the states experienced record-breaking rainfall as a result of Tropical Storm Hilary, the first tropical storm to hit southern California in 84 years.
According to the National Weather Service, certain regions in California saw their wettest August day on record. The rainfall totals in this area were equivalent to 50% of its average annual rainfall which resulted in widespread street-level flooding, Moody’s noted.
EV owners experience more issues with vehicle technology, study says
Owners of battery-electric vehicles (BEVs) are more likely to experience problems with advanced technology than drivers of internal combustion engine (ICE) vehicles, a new study shows.
J.D. Power’s 2023 U.S. Tech Experience Index, released last week, focused on user experience with advanced technology that’s new to the market to track problems experienced by drivers during the technology’s early days.
Its study was based on responses from 82,472 owners of new 2023 model-year vehicles surveyed after 90 days of ownership. According to J.D. Power’s findings, among 17 of the 21 advanced features offered by both ICE vehicles and BEVs, the latter vehicle type had more quality problems per 100 vehicles (PP100) with the exception of Tesla, which was not included in the analysis. The survey found that satisfaction with technologies such as remote parking assistance and interior gesture controls was 86% lower among BEV owners than it was for those driving ICE vehicles.
“Innovation through a strong advanced tech strategy is crucial for all vehicle manufacturers, especially those working to build their reputation in the electric vehicle space,” said Kathleen Rizk, senior director of user experience benchmarking and technology at J.D. Power.
She added: “The perception in the industry is that most BEVs should offer many advanced technologies to compete with high-tech entrants like Tesla. Success will be dependent on those manufacturers that can execute flawlessly while ensuring the user experience is the same for those who are tech-savvy and those who are not.”
J.D. Power noted that where newer electric vehicle (EV) OEMs like Tesla, Rivian and Polestar are delivering innovative new technologies, they are falling short elsewhere.
“Innovation and tech offerings are high for new manufacturers, but they are not providing a problem-free experience,” it said. “Average problem levels for advanced technologies among new manufacturers, except for Polestar, are well above the premium average of 24.3 PP100 and are among the highest in the industry.”
The study also touched on biometrics, saying those that monitor things like eye movement are less problematic than technologies that monitor physiological characteristics such as facial recognition.
NAIC regulators group calls for insurers to disclose data
The National Association of Insurance Commissioners (NAIC), the organization of state insurance regulation bodies, announced plans to issue a data call to insurance carriers, on behalf of its members, as a response to new concerns about availability and affordability of insurance being caused by severe weather and climate events, higher reinsurance costs and inflation.
But at least one consumer advocate sees this effort as too little, too late.
This action falls short of what other financial services regulators require and highlights a weakness in insurance regulation, according to Birny Birnbaum, director of the Center for Economic Justice.
Data calls collect data from insurers about property markets, coverages and protection gaps. NAIC assigned its Property and Casualty Insurance Committee to help state regulators develop property market data intelligence to better understand their markets and coverage gaps caused by changes in deductibles and coverage gaps.
Insurance regulators should be pushing for ongoing data collection at a granular level, according to Birnbaum.
"NAIC has rejected proposals for granular market monitoring data collection for decades," he wrote in response to questions about the NAIC action, noting that NAIC had criticized a data call proposal by the Federal Insurance Office, a unit of the U.S. Treasury that monitors the availability of insurance for underserved communities and consumers.
"NAIC said they would be surveying member states on changes in catastrophe peril deductibles," Birnbaum added. "Astonishing that regulators were not already routinely collecting such information."
Asked about carriers' response to the proposed data call, and the possible impact of this action, a NAIC spokesperson wrote that because it has not yet issued a framework for the data call, "it's too early to gauge industry reaction."
Commentary/Opinion
5 ways for insurers to prioritize innovation, adaptability
The Covid-19 pandemic was the catalyst for many businesses across industries to quickly pivot their operations to an online or hybrid model to stay in business. It also opened opportunities to provide new products and services to customers. Though insurers are traditionally stable, mature, and relatively slow-paced, they faced the same challenges as other industries and have untraditionally pivoted to meet demand and seize new opportunities.
Technology was largely responsible for the enablement of insurers that showed great agility and speed in making this shift. However, those slower to adopting technology have found themselves on a burning platform accelerating the need to change. The urgency to become more adaptable is clear according to a recent report from Deloitte Center for Financial Services, which found insurers should expect to be increasingly judged by stakeholders on their response to broad sustainability priorities such as climate risk, diversity and inclusion, social equity, and transparent governance – all of which could become competitive differentiators in the battle for talent, investors, and market share. To ensure both relevancy and profitability in an ever evolving and ambiguous environment, insurers will need to shift focus from risk reduction to risk-taking that enables innovation and is rooted in digital.
Deb Seidman Director, Kotter and Shaun Spearmon Director, Kotter
InsurTech/M&A/Finance💰/Collaboration
Vesttoo co-founders fired. Earlier 2019 fake letter of credit deal reported - Artemis.bm
Two of the co-founders of under-fire insurtech Vesttoo have now been fired by the Board, with CEO Yaniv Bertele and Chief Financial Engineer Alon Lifshitz now officially removed from the company, and a new allegation has been reported, that a 2019 transaction facilitated by Vesttoo also had a fake letter of credit (LOC).
Recall, the CEO and Chief Financial Engineer had been removed at the Board’s request and put on paid leave, as internal disagreements over how to handle the fall-out of the collateral fraud issues rose to the fore.
The Vesttoo Board then appointed Ami Barlev as interim Chief Executive Officer (CEO), while co-founder Bertele remained on paid leave at the time.
As we also reported just last week, during the Chapter 11 bankruptcy case Vesttoo was approved by the court to continue paying its staff, including certain employee benefits and expenses, but at a hearing last week the US Trustee balked at the suggestion terminated staff and founders may receive payments and so no exit payments are allowed to be made right now.
Now, Israeli publisher Calcalist has reported that the Vesttoo Board has sacked Bertele and Lifshitz after the conclusion of internal investigations and audits.
Lemonade's pet book is getting bigger
Lemonade released its quarterly statements for its two carrier subsidiaries – Lemonade Insurance Company and Metromile Insurance Company.
As of June 30, 2023, 70% of Lemonade’s written premiums originated from its renters/home segment and 29% are attributed to its pet business. For comparison, in the first six months of 2022, Lemonade’s renters/home business made up three-quarters (75%) of overall premiums and its pet business accounted for nearly a quarter (24%).
Lemonade’s auto business, which became available in Illinois in November 2021, accounted for just 1.5% of premiums in the first six months of 2023.
When it comes to Metromile, the carrier has experienced a noticeable premium decline ever since Lemonade completed the acquisition in July 2022. The company ended the first six months of 2023 with $49 million in written premiums, a 15% decrease compared to the same period in 2022. In terms of dollars, the most significant decrease occurred in California, which accounts for over 50% of Metromile’s business. The company saw premiums decline in every state it operates in.
From a marketing perspective, Lemonade is no longer in the red – at least from one point of view. Lemonade Insurance Company has an MGA agreement in place with Lemonade Insurance Agency whereby it pays LIA a commission equal to 25% of gross written premiums. The table below shows Lemonade’s sales and marketing expense and the commission it received for the written premiums.
For the first six months in 2021, Lemonade spent a dollar and a half in marketing for each dollar it received in commissions. In 2023, the company spent 70 cents in marketing for every dollar it earned.
Companion Protect, National Pet Insurance Administrator, Announces Completion of a $27M Series A Financing
Companion Protect, national pet insurance administrator, completes $27M Series A financing led by experienced FinTech investors.
Companion Protect®, a Kansas City-based pet insurance and pet wellness administration company, today announced it has raised $27 million in its Series A financing round from a group of experienced FinTech and strategic investors led by Avanta Ventures, Liberty Mutual Insurance, Old Republic International Corporation, as well as Stray Dog Enterprises.